Index Universal Popularity

[AndrewRoche]

It seems that index Universal Life is becoming a very popular and profitable product for insurance companies, I always thought it was a very complex product for the high net worth sophisticated client. Even Farmers has come out with a product and they don't even have competitive term rates! Are agents selling this product to the average consumer? If so why? Death benefit or retirement? Are they selling it in addition to a term product? Thanks for any input!

 

[WinoBlues]

It seems that index Universal Life is becoming a very popular and profitable product for insurance companies, I always thought it was a very complex product for the high net worth sophisticated client. Even Farmers has come out with a product and they don't even have competitive term rates! Are agents selling this product to the average consumer? If so why? Death benefit or retirement? Are they selling it in addition to a term product? Thanks for any input!

Had a conversation about this with an agent this afternoon. It is being sold today similarly to the way we did UL in the 80s and how Art Williams sold term in the 80s and 90s. I have replaced a half dozen in the last month or so. Most were under funded or sold to the wrong people.

 

[DHK]

Why The Middle Market Loves Iul | InsuranceNewsNetMagazine.com

 

[AndrewRoche]

Had a conversation about this with an agent this afternoon. It is being sold today similarly to the way we did UL in the 80s and how Art Williams sold term in the 80s and 90s. I have replaced a half dozen in the last month or so. Most were under funded or sold to the wrong people.

I still don't get it. How can an agent sell such a complex product to a consumer who wants life insurance? This seems to be one of the reasons why life insurance agents have a bad reputation. The market for this product used to be the wealthy and they would have banks and very experienced brokers who would arrange the premium financing of the product. I can't believe agents are selling this policy to average consumers.

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This is a disgrace. I wonder how many of the clients and agents know what exactly they are buying and selling,

 

[DHK]

Its being pushed by most imo's and most agents have no clue about what they're doing.

If you read some of scagnt83's posts, you see some ideas on how to properly structure an iul.

 

[AndrewRoche]

That's the problem. I'm familiar with how to structure the program and what ages and underwriting categories the product may work as a tool for estate planning but that market is tiny and very few agents have these types of clients and then even less are familiar with what product to use, What's better for what age, a five year bucket or an annual point to point. Is a global index better or the S&P? Again an agent who sells this as just another product should be ashamed of themselves. Their clients future is at stake,

 

[DHK]

I like the annual pt to pt well enough. My product has a currently 14% cap, so that's good enough to get interest credited regularly to help offset costs of insurance.

 

[AndrewRoche]

I know you probably know these answers but do other agents? Is the cap guaranteed and is the funding usually for five or seven years (depending on age) Is the participation guaranteed? Is the break even point less or more then 15 years?

 

[DHK]

Caps are never guaranteed... however, I've noticed a trend that they typically hover around that 14%. However, as the index segment expires, it can be repriced. (Notice that I call it by the proper term as a segment, and not a 'fund'.)

Funding is an ongoing contribution until retirement age. That's how I use it.

Illustrations aren't the best ways to determine "break-even" points because illustrations limit the illustrated annual interest credits. If the policy is well-structured, the break-even point should be well before 15 years... especially if there is positive volatility in the underlying index segment.

IUL does not credit interest at 7% per year, ever year, forever. It captures the upside volatility of the underlying segment, without the downside risks. Yes, there are costs of insurance and other administrative costs. But that is a separate risk that must be managed with the policy by a dedicated agent that will be around to service what they've sold.


In my opinion, IUL is best sold as a cash value accumulation vehicle for retirement income and 'infinite banking' purposes. I know there are some IULs that can be good for the death benefit focus - especially if they have a non-lapse guarantee rider - but it's best to fund an IUL at LEAST at the maximum target, if not a maximum funding of the lowest death benefit for a given premium.

If there's a death benefit focus, and little to no need for cash values, then I would probably recommend either term, non-lapse GUL, or a whole life with premium offset by policy values (dividends to pay premiums over time). That strategy isn't guaranteed, but it's another way to pay the premiums. You just cannot 'guarantee' that the policyholder will ever be done paying premiums.

In addition, the product I use has a full disability waiver of stipulated premium - whatever the premium is listed in the illustration is what is waived in the event of disability, not just costs of insurance, or a small cash premium contribution. Also, the product I use has a 10-year surrender charge schedule, rather than a 15-year like most IULs that I've seen. (I'm a fan of American National's Signature IUL.)

I am not responsible for the lack of education of other agents. But what they don't know CAN hurt them. Plus, there's plenty of information on these forums on how to properly structure an IUL.

Where some agents may get into some trouble, is if they have their IMOs doing the illustrations FOR them. If you're going to sell IUL... you need to do your own illustrations and know how the different illustration options work.

Did you have any other questions? I get the sense that there's something about IUL, or an IUL sale that you've seen, that really bothers you.

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Or perhaps a little bit about your background? Most captive agents frown on IUL because their agencies tell them that it's a ripoff for the consumer or some other stupid things.

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I still don't get it. How can an agent sell such a complex product to a consumer who wants life insurance? This seems to be one of the reasons why life insurance agents have a bad reputation. The market for this product used to be the wealthy and they would have banks and very experienced brokers who would arrange the premium financing of the product. I can't believe agents are selling this policy to average consumers.

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This is a disgrace. I wonder how many of the clients and agents know what exactly they are buying and selling,

The problem is in the question you are asking.

IUL is a solution to a problem. ALL kinds of insurance are solutions to problems. Some people have more than one problem that can be addressed very well by the proper use of a well-structured life insurance policy.

Using IUL as an "alternative retirement plan" is a very sound strategy, AS LONG AS it is properly managed by an agent who is dedicated to ongoing service and reviews of the policy & plans with the client.

If not, it can be a disaster waiting in the wings.

 

[AndrewRoche]

I have sold IUL on a group and individual basis and it took me years to understand the product. I am reentering the market and in my new research I can't believe what I am reading. I have had actuaries run what would had been actual returns (starting in 1990) with different funding methods at different ages and underwriting classifications so I am familiar what small niche market the product works. This is the most complex product on the market and I can't believe an agent would sell a product they don't understand.
When allowed, insurance companies can and will change the parameters of the their product and I wonder if that is always shared with the client.

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By the by I have wrote many companies and my concern is the how and why the product is being sold, No beef with any IMO or any particular company. The first IUL I sold was the ING Global and that was many moons ago.